China’s anti-Covid lockdown raises concerns over economy – World Affairs SRS

China’s anti-Covid lockdown raises concerns over economy

– World Affairs SRS

The lockdown in China’s major cities to fight the coronavirus outbreak is raising concerns about further disruptions to global industries as two makers of processor chips said their factories were affected.

This has increased uneasiness about the global economic impact of the Omicron variant. Analysts have warned Vietnam, Thailand and other countries could impose critical anti-disease measures for manufacturing chains that would delay deliveries.

Economists at Nomura said in a report on Friday that the lockdown in China is already causing disruption.

The Chinese economy was already cooling under pressure from unrelated official efforts to force real estate developers and other companies to reduce the mounting debt that fueled China’s boom over the past two decades.

The biggest city in China’s latest lockdown is Xi’an, a metropolis of 13 million people in the west. It is less important as a producer than the central city of Wuhan, which shut down in 2020 after seeing the first coronavirus cases there.

But Xi’an has factories that make processor chips for smartphones, auto parts and other accessories for global and Chinese brands.

Samsung Electronics and Micron Technologies Ltd say their factories in Xi’an are affected, but they are trying to minimize disruptions by attracting a global production network. Micron said some deliveries may be delayed.

Those factories make DRAM and NAND memory chips used in smartphones, personal computers, and services. Those variants weren’t affected by chip shortages last year that disrupted auto and other manufacturing. So the industry is likely to have reserves.

Authorities have also cut off access to parts of Ningbo, south of Shanghai, one of the world’s busiest ports. This is slowing down freight traffic and has the potential to increase already high shipping costs.

Yuzhou, a city with a population of 1.2 million in the central province of Henan, was put on lockdown on Thursday. Access to Yongjie in neighboring Shanxi province was suspended and mass testing ordered after traces of the virus were found at a train station.

The ruling Communist Party’s intense controls on travel and trade as part of a zero-Covid strategy, which aims to keep the virus out of China, have kept the number of new infections relatively low.

On Friday, the government reported 174 new cases nationwide, 57 of them in Xi’an and 56 in Henan province.

Unlike the United States and other governments that have tried to downplay the economic impact of anti-virus controls, the zero-Covid strategy involves travel and business restrictions that are imposing high costs.

Beijing last year took the unprecedented step of shutting down the world’s second-largest economy to fight the virus. Economic growth picked up in March after the ruling party declared victory over the virus, allowing factories, shops and offices to reopen.

But since then scattered cities, towns and some isolated neighborhoods have faced more temporary lockdowns to contain the outbreak.

Economic growth was already slowing after Beijing tightened controls on the use of borrowed funds by real estate developers. This led to a slowdown in construction, which is one of the biggest contributors to economic growth.

Forecasters have lowered their outlook for China’s economic growth in the last quarter of 2021 to 3 percent from a year ago, citing a slowdown in construction. This is down from 4.9 per cent in the previous quarter and 7.9 per cent in the three months ended last March.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is generated automatically from a syndicated feed.)

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